Friday, 10 May 2013

Good news!

In fact it's fantastic news. I am very excited. Very, very excited.

Some years ago, I bought, at huge expense, from Vector Vest, the most fabulous tool. It's worth every penny. It's called the "simulator". So far I have used it to choose the best share picking methods out of the almost 300 that Vector Vest provides. It has guided me well. Unfortunately it only works for US stocks. However I have now used it to test timing strategies and in this area the US is usually a good guide to what is happening.

I spent yesterday tediously putting the simulator through its paces to discover whether my support and resistance (S&R) timing system works (see the previous post), and wow! Does it work.

The simulator allows you to test timing lists against each other. Each timing list consists of a series of dates which are assigned the value up, down or neutral on that day. You can then set up a simulation which instructs the program to buy or sell shares based on one of the search method provided by the program. The simulation starts with a $100,000 virtual portfolio.

There are several pre-loaded lists based on VV’s timing systems, e.g. “confirmed calls”, “primary wave”, “green light buy/relative timing kicker.”. To this I added a list based on my S&R  plus or minus x%. The chart below shows an example of how this works from 2010 when the market was choppy and buys and sells were close together.

I told the simulator to buy shares, based on my favorite search method , whenever the signal was up and to sell them and go into cash when it was down. The search tool I used was one I had picked out as being strong and consistent through a series of simulator tests over a period of years. The simulator would then wait for the next up signal and would then run the search again and buy shares from the new recommended batch.

The results I achieved were very heartening and, subject to further tests, suggests I might well have found that holy grail of which I wrote in the previous post.

I tested from 24 November 2008 to the present (4 years and five months of rising but choppy trading). The Dow rose 79% over the period. The returns achieved by my simulations were as follows:

gain for period
annualised gain
Primary wave
Confirmed calls

Cracking result for my S&R you have to admit. I tested primary wave specifically because one of you kind readers suggested it might be better for my style of trading than confirmed calls. You may be right but the system seems to be hopeless for this type of long term trading. Thanks anyway. Please keep those comments coming. I need all the help I can get.

Here is a chart of how the simulation worked out for the S & R system. You can see that there were lots of worrying pull backs in profits, i.e. lots of times when in the real world, as an investor you would be sweating and kicking yourself, wishing you had pulled out before. The worst was a $53,000 pull back or 27% drawdown, as Vector Vest would put it. But the nerves of steel are a prerequisite for this game. 

A final caveat. Drawing and interpreting support and resistance lines is subjective, an art.  Vector Vest’s systems are mechanical. So all their errors can be blamed on the machine.

Lots more work is needed to check the results and to refine the system. But so far it looks very good indeed.

Next week may be an even thinner week for posts than this one. Lots of family stuff coming up. But I will endeavor to comment on anything dramatic. Here is last night’s chart. Talk to you soon guys.

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